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Reverse Logistics Reverse Logistics

Reverse Logistics - PowerPoint Presentation

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Reverse Logistics - PPT Presentation

Dr Ron Lembke Free Book Amazoncom 20 wwwrlecorg 0 Free download CSCMP Free to all members Flow of Retail Goods Retailer would like to stop it all at the red line Reverse Logistics ID: 559581

reverse logistics secondary returns logistics reverse returns secondary market product costs sell return cost brokers total goods disposition retail

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Slide1

Reverse Logistics

Dr. Ron

LembkeSlide2

Free Book

Amazon.com: $20

www.rlec.org

- $0Free downloadSlide3

CSCMP

Free to all

membersSlide4

Flow of Retail Goods

Retailer would like to stop it all at the red lineSlide5

Reverse Logistics

Logistics is the process of getting products from the point of production to where someone wants to buy them.

Cell phone from manufacturer in China to US distribution center

Reverse logistics is products going the “wrong way” to recapture value or proper disposal.

Like Salmon spawning, swimming against the currentSlide6

Reverse Logistics is:

The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information

from the point of consumption to the point of origin

for the purpose of

recapturing value

or

proper disposal

.Slide7

Things you don’t wantSlide8

Reverse Logistics MaterialsSlide9

A Bunch of JunkSlide10

RL and Green Logistics

Air & noise emissions

Environmental impact of mode selection

Packaging reduction

Product returns

Marketing returns

Secondary markets

Remanufacturing

Recycling

Reusable packaging

Disposal issues

“Green” Logistics

Reverse LogisticsSlide11

U.S. Reverse Logistics Costs

Total U.S. Logistics Costs $970,000,000

Approximate RL cost %

4.00%

Estimated U.S. RL Costs

$38,800,000

Source for U.S. total costs Bob Delaney, 13

th

Annual State of Logistics Report.Slide12

Size of Reverse Logistics

Logistics costs 9.5% U.S. economy.

(

State of Logistics Report)

Logistics costs were $1.2 trillion in 2005

Reverse logistics costs 4-5% total logistics costs or

Roughly one-half percent of the total U.S. gross domestic product (GDP).

Reverse logistics costs approximately $60 billion in 2006. Slide13

How much stuff comes back?

We estimate 6% based on extensive interviews

5.5% Shop.org

6% was “typical” in 19584-5% in 192915% - Chicago (State St.) 1933 12.5% - Boston 1933Slide14

How much stuff?

$870b furniture, clothing, electronics, sporting goods, general merchandise, catalog sales

6% return rate

$52b product returned annuallySlide15

Productivity PressSlide16

Key

RL Management

Elements

GatekeepingCompacting Disposition Cycle Time

Reverse Logistics Information Systems

Centralized Return Centers

Zero Returns

Remanufacture and Refurbishment

Asset Recovery

Negotiation

Financial Management

OutsourcingSlide17

Reverse is Different

Forward

Reverse

Product quality uniform

Product quality not uniform

Disposition options clear

Disposition not clear

Routing of product unambiguous

Routing of product ambiguous

Forward distribution costs more easily understandable

Reverse costs less understandable

Pricing of product uniform

Pricing of product not uniform

Inventory management consistent

Inventory management not consistent

Product life cycle manageable

Product lifecycle less manageable

Financial Management issues clearer

Financial Management issues unclear

Negotiation between parties more straightforward

Negotiation less straightforward

Type of customer easy to identify and market to

Type of customer difficult to identify and market to

Visibility of process more transparent

Visibility of process less transparentSlide18

Cost Comparisons: Reverse vs. Forward

Cost

Comparison to Forward Logistics

Transportation

Higher

Inventory holding cost

Lower

Shrinkage (theft)

Much lower

Obsolescence

May be higher

Collection

Much higher -- less standardized

Sorting, quality diagnosis

Much greater

Handling

Much higher

Refurbishment / Repackaging

Significant for reverse logistics, very low for forward

Change from book value

Significant for reverse logistics, nonexistent for forwardSlide19

CRCs: What do they do?

Store sends to CRC – centralized return center, which:

Identifies the product

Assesses its conditionSell as newSell as is via outlet, retail

RTV return to vendor if possible

Sell to brokers

Landfill / recycleSlide20

Typical Benefits from

Centralized Return Centers

Simplified store procedures

Improved supplier relationshipsBetter returns inventory control

Improved inventory turns

Reduced administrative costs

Reduced store level costs

Reduced shrinkage

Refocus on retailer core competencies

Reduced landfill

Improved management informationSlide21

Centralized Return Centers

Consistency - Impose procedures

Space Utilization

Labor Savings

Transportation Costs

Improved Customer Service

Compacting Disposition Time

Visibility of Quality Problems

Forward/Backward

Accounting Issues

Information system improvement

Bottom line impactSlide22

Key Reverse Logistics Management Elements

Improve return “gatekeeping

.”

Compact disposition cycle time.

Information systemsSlide23

Disposition Options

What are we going to do with it?

Sell as new and make a profit

Open box – discounted, smaller profitRTV – money back, but have to pay shipping, paid to stock, repack, etc.Sell off for 10% of cost

Recycle – less than 10% at best

Landfill – pay to haul awaySlide24

Compact Disposition Cycle

Respondent firms that have very short reverse logistics disposition cycle times have lower average reverse logistics costs as a percentage of logistics costs.

Shorter reverse logistics disposition cycle times result in

reverse logistics costs having a smaller impact on profitability.Slide25

Outsourcing:

Bottom-Line Impact

In-House

Outsourced

Central Return Center 4.8% 3.7%

By what percentage did reverse logistics costs reduce your profits?

Companies that outsourced Central Return Centers saw profits reduced by smaller about due to returns.Slide26

RL Service Providers-2002

Contacted 135 3PLs offering RL services

Inbound Logistics, Google

52.4% response rate (9 wouldn’t respond)55 actually provide some kind of reverse logistics services (10 don’t)38 actually touch the product

17 sell a software product

35 manage transportation of RLSlide27

Does your firm have reverse logistics IT system capabilities?Slide28

What type of systems?

Return tracking, RMA 33%

Dispositioning 9%

WMS 24%Retail 3%

Manufacturing 2%Slide29

Do you expect reverse logistics activities to increase?Slide30

Zero Returns

Reduces the variability of returns costs.

Retailer has to take responsibility for minimizing returns.

Enables the firm to avoid the problem of physically dealing with returns altogether.

Does not reduce much of the physical burden placed on downstream channel participants.

Cannibalization of “A” channel concerns.

2%/6% ProblemSlide31

Customer ReturnsSlide32

Marshall Field’s

1861 ad

“Give the Lady What She Wants”Slide33

Return Percentages

Book Publishers 20-51%

Book Distributors 10-20%

Greeting Cards 20-30%

Catalog Retailers 18-35%

Electronic Distributors 10-12%

Computer Manufacturers 10-20%

CD-ROMS 18-25%

Printers 4-8%

Mail Order Computer Manufacturers 2-5%

Mass Merchandisers 4-15%

Auto Industry (Parts) 4-6%

Consumer Electronics 4-5%

Household Chemicals 2-3%Slide34

Efforts to Reduce Returns

Shorter Returns windows

Restocking fees

Mandatory Receipts, IdentificationLook up purchaseGift cards instead of refunds w/o receiptSell instead of gifts – nothing to return!Slide35

Customers Accepting ChangesSlide36

Elaine:  Hey.  Oh, is that a label

maker?

Jerry

:  Yes it is.  I got it as a gift, it's a Label Baby Junior.

Elaine:  Love the Label Baby, baby.  You know those things make great gifts, I just got one of those for Tim Whatley for Christmas

.

Jerry:  Tim Whatley

?

Elaine:  Yeah.  Who sent you that one

?

Jerry:  One Tim Whatley

!

Elaine.  No, my Tim Whatley? I think this is the same one I gave him.  He recycled this gift.  He's a

regifter

!

Copyright © 2005 Reverse Logistics Trends, Inc.

Regifting

”Slide37

Regifting?

Copyright © 2005 Reverse Logistics Trends, Inc.Slide38

Harris Interactive Poll

Men Women Total

Have done it 39% 64% 52%

Think it’s OK 70% 86% 78%

By Age: 25-34 35-44 45-54

Plan to do it 46% 36% 28%

Copyright © 2005 Reverse Logistics Trends, Inc.Slide39

Giftcards?

Gift cards estimated at $60b

10-15% go unused

CardAvenue 5,000/moCopyright © 2005 Reverse Logistics Trends, Inc.Slide40

Consumer Returns Focus Groups

Consumer Electronics Association

Focus Groups:

Half men, half women

10 online, 2 in-person groups

All across US

eBrain market research

Recruited through SurveySavvy.com

Returned consumer electronics product recently.Slide41

Focus GroupsSlide42
Slide43

What if you could never return?

not buy any thing

I sometimes make bad purchase decisions..

I wouldnt shop thereI’d be very reluctant to buy with a no returns policy. Stuff happens.

I won't buy nothing at a store with such policy

“Tuck the Tags”

Receipts? Look me upSlide44

How choose a store

“It's the closes electronics store to where I live, not that much thought really”

“the cheapest cost or closest location or sale”

“looked up ads for a couple of weeks, found the cheapest price”

“FREINDS FAMILY”

“long relationship”

“COOL”

“Price and location”

No one mentioned returns policy Slide45

Shifting Policies

Returns Avoidance

Customer behavior adaptingSlide46

Even The Almighty is ConfusedSlide47

Secondary Markets

Who is in it?

How big is it?Slide48

Research Motivation

Companies typically sell to secondary market as last resort

First, mark down 50 or 75%, to roughly 50% of cost, still didn’t sell in stores

Broker buys for 10% of costA 1 percentage point increase gives a 10% in revenues

For a large retailers, that’s millions of $Slide49

Secondary Market Flow

We want to understand

the total dollars flowing through the secondary marketSlide50

Key Decision Factors

Price secondary to trust in choosing whom to sell to

Brand equity protection

Who are you? Why do you want to know?Very thin marginsBuy for 10-15% of cost typicallyMark up by 1%

Try to sell before taking possession, buyer takes it straight from retailer’s dockSlide51

Secondary Market Goods

New product:

Overproduction

Shelf pullsLiftsMarketing returnsSecond quality

End of life/season closeouts

Salvage / returns:

Customer returns

Freight damage

Defective

Recalls

Gray market

Black market

KnockoffsSlide52

Secondary Market Buyers

New vs. Salvage:

New: Close-outs, job-outs, surplus

DivertersDeal in salvage, deal in both

Primary brokers

Buy large quantities (truckload) from retail

Sell TL or pallet quantity to secondary brokers

Brokers want to resell before possession

“Direct from retailer”Slide53

Selling Process

Pricing

Per pallet, per pound, per item

“Cherry picking” despisedBuyers’ belief less information is betterCaveat emptor: Good & bad loads even outSlide54

Structure of Selling

No standardization, automation

Phone, fax often still primary tools

Retailers sell same things at same timesBrokers call and requestSome quasi-auctions, some FCFS Trust: Relationship-based processesOften Invitation only

Gordon Brothers exchangeSlide55

Information availability and

Risk to Buyer

Low risk to buyer

Maximize revenue

Predictable profits

for buyer

Low High

Information availability to broker

Low High

Variabilty of product

Brokers unwilling to risk

High trust requiredSlide56

Secondary Market value (% of cost) as Condition improves

Damaged Used New

100%

0%

Repaired

“As is”Slide57

Brokers

Overstock Brokers: new product

seasonal

package change product changeOverrunsSalvage Brokers: not new conditionReturned goods

Shelf damage

Acts of GodSlide58

Size of Secondary Market

Secondary Market:

$329B

US GDP:

$ 14,440B

2.28% US GDPSlide59

Salvage Dealer?Slide60

Highway 61 = eBay?

Well Mack the Finger said to Louie the King

“I got forty red white and blue shoe strings

And a thousand telephones that don't ring

Do you know where I can get rid of these things?”

And Louie the King said, “Let me think for a minute son.”

And he said, “Yes I think it can be easily done.

Just take everything down to Highway 61.”Slide61

Who buys from the brokers?

Sold directly on eBay

Buy a pallet, open a shop

Flea marketsWebsitesDollar / Bargain storesSlide62

Returns to Secondary Market FlowSlide63

Methodology

Delphi Panel Methodology

Lack of data, inability to measure directly

Panel4 mass merchandisers (RL and returns)4 3PLs specializing in RL

5 RL managers at CE firms

2 contract manufacturers

3 industry association executive directorsSlide64

Auctions

eBay,

amazon

, nobetterdeal, alibris

eBay goods

sold 2008 $59.7b

Not including autos

Market share estimated at 60%

Total market $99.4bSlide65

Pawn Shops

3 Largest Publicly Traded:

EZ

PawnCash America InternationalFirst Cash Financial Services10% of total market

Combined

CoGS

* 10:

$5,655 mSlide66

Dollar Stores

Dollar Tree (40% of US stores)

Dollar

GeneralFamily Dollar80% of goods estimated to be from asset recovery process$17,669 m

Underestimate

American consumers much more willing to purchase from secondary outlets.

Can be difficult to manage.

Fastest growing retail sectorSlide67

Charities Flea Markets

Salvation Army

Goodwill

Industries$2.7b combined revenuesClear underestimate

$30 billion estimate, 2006

10-15% increase since then

$33 billionSlide68

Reuse

Friends of Multiple Sclerosis will pick it up, sell it at Savers’

Washoe ARC pick up

Salvation Army, GoodwillSlide69

Value Retailers

Often returned to retail, or bought on secondary market

1-2 seasons behind current retail

Big Lots,

TJ Maxx, Marshall’s, Ross

Combined revenues $30,013 m

clear underestimateSlide70

Factory Outlets

Factory Outlet Stores:

Goal often 70% of retail price

80% of goods non-secondary marketFactory Outlet Sales58,579,379 SF 95% typical occupancy rate

$301 revenue/SF

$13,400 mSlide71

Salvage Dealers-2007

Econ Census

Avg

Cust

Returns %

% to Secondary

Mkt

$m of Cust Returns to Secondary Mkt

Marketing Returns

$m

Mktg

Returns to Secondary

Mkt

Computers & Consumer Electronics

87,664

6%

75%

3,945

7%

6,136

Clothing

Stores

157,715

10%

75%

11,829

7%

11,040

Department Stores

210,142

6%

75%

9,456

7%

14,710

General Merchandise

367,865

6%

75%

16,554

7%

25,751

Electronic Shipping & Mail Order

215,963

8%

75%

12,958

7%

15,117

Total

1,039,349

54,742

72,754 Slide72

Salvage Dealer Market FlowSlide73

Size of Secondary Market

Sector

Size

Auctions

99,416

Outlets

14,105

Dollar Stores

17,669

Flea Markets

33,000

Pawn Shops

565

Charity

2,691

Value Retailers

30,031

Retail Salvage Goods

127,496

Total Size of Secondary Market

324,973

2008 US GDP

14,440,000

Secondary Market as % US GDP:

2.25%Slide74
Slide75

288 t-shirts & caps

Sewickley, PA: World Vision

Remote villages in Africa

Antithesis of revenue maximization

Security is Sometimes Key